Friday Roundup

“Scurrilous and hypocritical,” scrutiny alerts and updates, a foreign official brain teaser, quotable, and for the reading stack. It’s all here in the Friday roundup.

“Scurrilous and Hypocritical”

As I have highlighted for years (see approximately 25 separate posts under the subject matter heading double standard), there is a double standard concerning corporate interaction with “foreign officials” under the FCPA and corporate interaction with U.S. officials under other U.S. laws – specifically 18 U.S.C. 201.

“[A]ccording to financial regulators now looking into the hiring practices of major U.S. banks and multinationals in China—some of which have employed members of influential Chinese families—anyone who once hired me [Levitt's father was the New York state comptroller] might have been violating ethical and legal standards. Securities and Exchange Commission regulators now suggest that such hiring overseas is a form of untoward influence, akin to bribing foreign officials to win business.

The accusation is scurrilous and hypocritical. If you walk the halls of any institution in the U.S.—Congress, federal courthouses, large corporations, the White House, American embassies and even the offices of the SEC—you are likely to run into friends and family members of powerful and wealthy people.

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Whether this is right or wrong, unfair or fair, is not the point. It is hypocritical of financial regulators to criticize—even penalize—practices abroad that are commonplace in Washington, New York and other seats of political and economic power.

Were the SEC to be completely consistent in its approach, it would have to come down hard on the same practices here in the U.S. And the agency would have a field day. Members of Congress and the executive branch regularly hire the children of major donors. Regulators would find scores of examples of men and women, occupying internships and entry-level positions in U.S. corporations, who were hired on the say-so of someone much higher up in the organization.

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[I]f we were to deny multinational companies the ability to hire locally recommended talent, where do we draw the line? Are spouses of influential officials off-limits, but not their children? What about siblings? If not siblings, what about cousins, uncles, nephews? And then there is the issue of friends: How can a financial regulator know whether a friend of someone in power received a job offer in good faith or as a form of influence peddling?

I would hate to imagine what would happen if we applied the same kind of sliding scale to the many people who have received job offers by way of their familial relationships. If that happened, there aren’t many people in finance who would escape the accusation that their hiring was the byproduct of influence peddling.”

Scrutiny Alerts and Updates

This Macau Business Daily report notes the timing of a $10 million pledge by Nasdaq-listed Melco Crown Entertainment for a cultural project in collaboration with the Tokyo University of the Arts. As noted in the article, the company needs various government permissions to increase its presence in Japan. As noted in this prior post, among others, casino operators including Wynn Resorts have been the subject of FCPA scrutiny based on similar charitable contributions.

This previous post highlighted how Transparency International urged the DOJ to investigate the conduct of Walters Power International (an Oklahoma based company that supplies, develops, services and manages electrical generation power plants around the world) in connection with power plant projects in Pakistan. This recent article in The News International reports that Walters Power has “been cleared of any misconduct by the US Department of Justice.” The article notes:

“Following [TI's] complaint, the US Department of Justice launched a lengthy inquiry against WPIL [...]. On Oct 31, 2012, it informed WPIL’s [...] lawyers in the US that the inquiry was being closed as no evidence of wrongdoing could be found against the companies. The clearance letter, a copy of which is available with The News, said: “Over the past several months, your client, Walters Power International Ltd., has responded to a number of inquires by the Department of Justice, Criminal Division, Fraud Section, into possible violations of the Foreign Corrupt Practices Act. You have also responded to inquiries on behalf of Pakistan Power Resources, LLC, and Walters Power International, LLC. As you are aware, the Supreme Court of Pakistan issued an order on March 30, 2012, that declared the country’s rental power plant contracts void ab initio. Our review of that order and related pleadings has revealed no allegations of bribery in connection with those contracts. In addition, on July 24, 2012, Pakistan’s National Accountability Bureau closed its case regarding Walters Power noting that “there remains no basis for further proceedings about the Company.” Finally, Transparency International Pakistan, which publicly referred this matter to the US Department of Justice, has provided no evidence of bribery in connection with the RPP contracts in response to our request for further information. Based upon our investigation and the information that has been made available to us to date, we presently do not intend to take any enforcement action and are closing our inquiry into this matter. If, however, additional information or evidence should be made available to us in the future, we may reopen our inquiry.”

The article concludes as follows.

“Interestingly, WPIL [...] sat on this letter issued by the US Department of Justice for over a year. When asked why this letter had not been made public for so long, a spokesman for WPIL said: “We cooperated unreservedly with the impartial and unimpeachable investigation of the US Department of Justice and are satisfied with the results. The findings of the US Department of Justice were shared with all shareholders and financial institutions but not made public for fear that this might be misconstrued as a rebuke by the now former chief justice of Pakistan.” He added that the Washington inquiry found no evidence of wrongdoing on the part of either company, contrary to popular misconceptions within Pakistan.”

“Foreign Official” Brain Teaser

As noted in this recent Wall Street Journal article, China State Construction Engineering Corp. (the largest home builder in the world), “is making its first acquisition in the U.S. market through its American subsidiary, as the company continues its aggressive push into overseas markets. China Construction America, the U.S. subsidiary, … agreed to acquire Manhattan-based Plaza Construction for an undisclosed sum.” As noted in the article, “Plaza Construction mainly provides construction management and consulting services in places including New York, Florida, California and Washington, D.C.”

Congress never intended for employees of state-owned or state-controlled enterprises (SOEs) to be “foreign officials” under the FCPA – see here for my “foreign official” declaration – but given the DOJ and SEC’s “foreign official” interpretations, post-acquisition are Plaza Construction employees now Chinese “foreign officials?”

“I’d like to make clear why fighting corruption is a critical priority for me personally, and for the entire World Bank Group: Every dollar that a corrupt official or a corrupt business person puts in their pocket is a dollar stolen from a pregnant woman who needs health care; or from a girl or a boy who deserves an education; or from communities that need water, roads, and schools. Every dollar is critical if we are to reach our goals to end extreme poverty by 2030 and to boost shared prosperity. Let’s not mince words: In the developing world, corruption is public enemy number one. We will never tolerate corruption, and I pledge to do all in our power to build upon our strong fight against it.”

Reading Stack

The most recent edition of the always-informative Debevoise & Plimpton FCPA Update is here. As to the recent Weatherford settlement, the Update states as follows.

“The $152 million in fines and penalties paid by Weatherford make it the eighth largest FCPA settlement in history. Although the monetary resolution is objectively large, comparing it to the monetary resolution in another recent enforcement action points to the difficulty of ascertainting the logic of penalty determinations.

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Beyond the lack of transparency in the calculations that led to the financial resolution – a recurring feature of settled FCPA matters – the Weatherford settlement, like other recent settlements, is a disposition in which facts are included in the allegations or information without an explanation as to why they are relevant, potentially creating even more confusion as to what is or is not acceptable from the enforcement agencies’ point of view.”

For the recent post titled “FCPA Settlements Have Come a Long Way In a Short Amount of Time,” see here.

As to the recent Corruption Perception Index scores recently released by Transparency International (see here for the prior post), the FCPA Update rightly notes as follows.

“[W]hile companies subject to the FCPA, the UKBA, or other transnational anti-bribery regimes should continue to pay heed to the CPI, those seeking most efficiently to assess compliance risks also need to assess such matters as: (1) sector risk; (2) business model risk (including the degree to which the firm relies on third parties and the nature of controls over their activities); and (3) the nature and scope of government interactions, not only in connection with winning sales from government customers but also in obtaining zoning and building permits, tax clearances, customs rulings, currency transaction permissions, investment and financing approvals, and a range of other daily decisions from government actors. Firms with business risks associated with non-compliance such as expiring patents, excess capacity, disproportionate sales-based compensation, and limited oversight over sales and supply chain personnel, may well have significant corruption risks even in nations ranked highly in the CPI.”